The U.S. dollar experienced a significant decline on Thursday, driven by disappointing inflation data for May that hinted the Federal Reserve might consider cutting interest rates sooner than expected. As tensions rose in the Middle East, currencies like the Japanese yen and Swiss franc became increasingly appealing to investors seeking safe-haven assets.
Notably, the euro surged to its highest value against the dollar in almost four years. Data pointed to a lower-than-anticipated increase in the U.S. Producer Price Index (PPI) for May, attributed mainly to reduced service costs, including airfare.
Additionally, the Consumer Price Index (CPI) also showed cooling inflation trends. Vassili Serebriakov, an FX analyst at UBS, mentioned that while higher tariffs have yet to impact inflation data, a slowdown in U.S. growth is evident.
The markets have already priced in two interest rate cuts by the Fed this year, suggesting a potential shift in monetary policy. Market speculation is building that the Fed may implement two consecutive interest rate cuts starting in September, revising forecasts following weaker inflation measures.
Nomura has lowered its prediction for the core Personal Consumption Expenditure (PCE) price index due to these reports, now estimating it at 0.169%—the lowest since November 2020. Meanwhile, safe-haven assets gained traction as geopolitical uncertainties increased, particularly following President Trump’s comments about U.S. personnel withdrawals from the Middle East.
This sentiment led to a stronger demand for the Swiss franc and yen while the dollar, down more than 1% against the Swiss franc and 0.7% against the yen, continued to weaken. The euro’s ascent was supported by a hawkish stance from the European Central Bank, bolstered by a return to the 2% inflation target.
Amid these developments, Trump’s remarks about extending trade talks while finalizing tariffs for other countries added more uncertainty to the dollar’s outlook. The greenback decreased by 0.5% against a basket of currencies, reflecting ongoing volatility in the market.